“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Precision BioSciences, Inc. (NASDAQ:DTIL) and see how it was affected.
Precision BioSciences, Inc. (NASDAQ:DTIL) has experienced an increase in hedge fund sentiment in recent months. DTIL was in 14 hedge funds’ portfolios at the end of the first quarter of 2019. There were 0 hedge funds in our database with DTIL holdings at the end of the previous quarter. Our calculations also showed that DTIL isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a look at the latest hedge fund action regarding Precision BioSciences, Inc. (NASDAQ:DTIL).
How are hedge funds trading Precision BioSciences, Inc. (NASDAQ:DTIL)?
Heading into the second quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14 from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DTIL over the last 15 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, RA Capital Management, managed by Peter Kolchinsky, holds the largest position in Precision BioSciences, Inc. (NASDAQ:DTIL). RA Capital Management has a $33.1 million position in the stock, comprising 1.4% of its 13F portfolio. Coming in second is Adage Capital Management, led by Phill Gross and Robert Atchinson, holding a $16.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions comprise Bihua Chen’s Cormorant Asset Management, Benjamin A. Smith’s Laurion Capital Management and Albert Cha and Frank Kung’s Vivo Capital.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. RA Capital Management, managed by Peter Kolchinsky, established the most outsized position in Precision BioSciences, Inc. (NASDAQ:DTIL). RA Capital Management had $33.1 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also initiated a $16.2 million position during the quarter. The other funds with brand new DTIL positions are Bihua Chen’s Cormorant Asset Management, Benjamin A. Smith’s Laurion Capital Management, and Albert Cha and Frank Kung’s Vivo Capital.
Let’s go over hedge fund activity in other stocks similar to Precision BioSciences, Inc. (NASDAQ:DTIL). We will take a look at Golar LNG Partners LP (NASDAQ:GMLP), ATN International, Inc. (NASDAQ:ATNI), Turning Point Brands, Inc. (NYSE:TPB), and Internet Initiative Japan Inc. (NASDAQ:IIJI). This group of stocks’ market caps are closest to DTIL’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $91 million in DTIL’s case. Turning Point Brands, Inc. (NYSE:TPB) is the most popular stock in this table. On the other hand Internet Initiative Japan Inc. (NASDAQ:IIJI) is the least popular one with only 2 bullish hedge fund positions. Precision BioSciences, Inc. (NASDAQ:DTIL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately DTIL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DTIL were disappointed as the stock returned -22.8% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.